SUMMARY MINUTES OF A MEETING OF

THE CHAPEL HILL TOWN COUNCIL

FOR THE PURPOSE OF DEVELOPER INTERVIEWS

FOR A DOWNTOWN ECONOMIC DEVELOPMENT INITIATIVE

MONDAY, MAY 23, 2005 , AT 8:15 A.M.

Mayor Kevin Foy called the meeting to order at 8:15 a.m.

Council members present were Sally Greene, Ed Harrison (arrived at 8:26 a.m.), Cam Hill (arrived at 8:22 a.m.), Mark Kleinschmidt, Bill Strom, Dorothy Verkerk (arrived at 8:45 a.m.), Jim Ward, and Mayor Pro Tem Edith Wiggins.

Staff members present were Town Manager Cal Horton, Deputy Town Manager Florentine Miller, Assistant Town Manager Bruce Heflin, Senior Long range Planner Chris Berndt, Senior Planner Phil Harvey, and Acting Town Clerk Sandy Cook.

Guests present were Steve Maun and Macon Toledano of Leyland Alliance, Paul Ostergaard of Urban Design Associates, Jeff Harris of Grubb Properties, Josh Gurlitz of GGA Architects, and Ivy Greaner, Casey Cummings, Peter Cummings, Tom Lowe, and Susan Tjarksen-Russos of RAM Development.

Mayor Foy commented that the purpose of the meeting was to consider further steps in the downtown economic development initiative, specifically the potential development of Parking Lots 2 and 5.

Review of Process

Council Member Strom, Chair of the Council Committee on Lots 2 and 5, said that a tremendous amount of work had been performed by the Town’s professional staff and the Town’s consultant, as well as by interested members of the private sector.  He said this was a meeting of the full Council, and that on June 2 at 4:00 p.m. the Council Committee would reconvene to continue discussion.  Council Member Strom said the Council was scheduled to receive a recommendation from the Committee on June 15, and could possibly take action at that time.

Council Member Strom remarked that the format for the meeting would be presentations by the two firms that had submitted proposals to the Town, each scheduled for 45 minutes.  That would be followed by 20 minutes for questions by the Council, he said, for clarification purposes.  Council Member Strom said at that point the Town’s consultant, Stainback Public/Private Real Estate (SPPRE) would have 20 minutes for questions, then the Council would again have 20 minutes for questions.  He stated the Council would then move into the First Floor Conference Room for lunch and to continue its discussion on the presentations.  Council Member Strom said the Council would then develop further questions to clarify any information necessary.

Grubb Properties/Leyland Alliance Presentation

Steve Maun, President of Leyland Alliance, stated that Leyland was a builder of new urbanist communities, and with Grubb Properties would try to bring the Town’s dream into reality.  He said they were focused on “main street,” which should be a special place that evokes memories from childhood that are carried forward into adulthood.  Mr. Maun said these images of “place making” in the public realm excited them about Franklin Street, Rosemary Street, Henderson and Church Streets.

Mr. Maun said it was not just about buildings, but about people, and it was important to give the pedestrian in the public realm a place to live, to work, and to play.  He displayed photos as examples of typical main streets, noting the similarities.  Mr. Maun said what they loved about new main streets today was that it was not about how the crosswalks were striped or what the trash receptacle looked like, but rather about diversity of use and putting feet on the street to drive retail.

Mr. Maun said they were glad to see that the Council had recognized and understood the importance of residential living on main street.  He said they were currently working on projects in other university towns, and there was a demographic shift to move back into cities and towns to enjoy the rich culture and activities that a downtown offers.  Mr. Maun said they would like to use a combination of architecture and retail excitement along with residential activity, and put them all together in a public realm context that would draw people back to downtown.

Macon Toledano noted that he was a graduate of UNC in Art History with an emphasis on architecture, and he was excited to be back in Chapel Hill to help the Council create a vision for  downtown.  He displayed slides of downtown, particularly development taking place by the University with its Arts Common and the Downtown Commission’s concept of retail on Franklin Street.  Mr. Toledano noted that Franklin Street was the glue that held the University and the Town together, and they were excited that the Council had focused so much time and effort on this project and had recognized the value of what creating a livable community was all about.  He said that having a shared, common living room that everyone could use would give the Town a sense of community and civic identify.

Mr. Toledano said the following was what it would take to do that:

· a team with shared goals and expertise in the development of mixed-use projects and public/private partnerships,

· a process of public and private involvement and team cooperation.

· a commitment in a shared vision and legacy of quality, and

· a touch of realism.

Mr. Toledano provided a list of the team that Leyland had assembled for this project, as well as a brief description of each:

Grubb Properties – local and mixed-use developers

Leyland Alliance – leading new urban developers

Urban Design Associates – pre-eminent urban designers

FMK Architects – local urban infill and mixed-use designers

Gibbs Planning Group – internationally recognized main street retail experts

Steven Winter Associates – former Chairman of the U.S. Green Building Council

Michael Gallis and Associates – national strategic planning leaders

Resolute Building Company and Rodgers Builders – experienced local builders

Mr. Toledano said that this team could assist the Council in bringing its vision to fruition.  He said that Paul Ostergaard of Urban Design Associates would speak about the design component of the project.

Mr. Ostergaard said they had developed a design that followed the Council’s established guidelines.  He said this was just the first step in the process, since this sort of work on these two critical sites would require broad public participation.  Mr. Ostergaard stated that the first phase of work in the planning process would begin with data collection and analysis of the competition designs, which would bring the entire design team in to meet with as many people as possible in focus groups and in interviews.  He said the design team would get feedback and input on the design, and talk in general terms about the strengths and weaknesses of the business district and visions for the future.

Mr. Ostergaard said after they had assimilated all of this information, the next step would be for them to come back and hold a week-long design charette in Chapel Hill with all the team members present.  He said they would seek input on ideas generated, on what ideas had merit and those that did not, and what had not been incorporated into designs that they would like to see.  Mr. Ostergaard said from that process would emerge designs for both sights, and they would hold a second charette from which refined designs would be developed for a concept plan.  The next step, he said, would be to proceed through the Council’s Special Use Permit process.

Mr. Ostergaard noted that the architecture, streetscape, and institutional and commercial buildings in the downtown, as well as the open space atmosphere and landscape patterns would be taken into consideration.  He said the work they do would include preparing a photo documentary of the Town so that they could better understand the architecture and richness of scale of the Town.

Mr. Ostergaard displayed photos of the two site plans they had developed.   for the two sites.  He said he believed the public space of the streets was the most important part of the design, and they had focused on that.  Mr. Ostergaard said they believed that parking should be allowed on Franklin Street and on Rosemary Street to enhance the shopping environment.  He noted that Church Street was a two-lane street with a narrow right-of-way, and it was their proposal that the street should be widened in the block between Rosemary and Franklin Streets to add an additional lane for on-street parking or other uses.

Ms. Ostergaard said they had set the building back 20 feet beyond that, which resulted in devoting 30 feet from the existing curb to improve the public space of the Town.  He displayed a building diagram to show how the building would be placed on Lot 5 as well as proposed the landscaping.  Mr. Ostergaard pointed out the public space on the plan, which would be a plaza surrounded by retail and entertainment uses.

Mr. Ostergaard displayed diagrams of the anatomy of the development.  He said they had taken soil samples and discovered that bedrock was located very close to the surface.  He said in order to provide underground parking, they had designed the parking level to skirt some of the higher elevations of bedrock so that they would minimize costly excavation.  Mr. Ostergaard said they had integrated that with above-grade parking located mid-block and surrounded it by other uses so that it was not visible from the street.  He added that it was surrounded by commercial uses with residential uses overhead.

Mr. Ostergaard exhibited sectional diagrams showing the parking, housing, retail and commercial uses.  Using a 3-D model of the Town, he described how the project with all of its uses was located on the site.  Mr. Ostergaard noted that the residential tower was set back from Franklin Street so that it would not dominate the street, but would be visible in the background from the street.  Mr. Ostergaard exhibited slides of the view of the project from Franklin Street, noting that the project would “pick up” the architectural character and traditions of Chapel Hill.

Mr. Ostergaard commented that public art would be an important part of the project, noting that it should be integrated into the design of the project to enrich the environment.  He said this would come through a planning process with the Town to determine what opportunities exist.  Mr. Ostergaard presented slides of what the public space might look like from Franklin Street, as well as slides of what the project would look like from Rosemary Street.  He noted they had provided sufficient space for landscaping and sidewalks along the street.

Mr. Ostergaard then displayed slides of Lot 2, pointing out that it was designed with a great deal of care to allow for public space on top with attractive elevation, although it had only a single use.  He said in order to bring new residential life and create beautiful public space in the downtown, they believed the existing structure could be hidden behind more active uses.  Mr. Ostergaard said this proposal was somewhat different than what had been suggested by the Council Committee, but believed with certainty that it was one that was worthwhile to consider.  He said by putting the parking garage out of view new uses along Rosemary Street could be created.

Mr. Ostergaard stated they wanted to be sensitive to the scale of buildings and architecture in this area.  He noted that there was a certain amount of informality about the Town with lots of trees and open space, and they wanted to preserve this quality on the Wallace Deck site.  Mr. Ostergaard said their proposal was to add a new parking level in one area and on top of that build loft apartments, noting some of those would be affordable. He said those loft apartments would have high ceilings and large windows, and would open onto a residential patio or courtyard.

Mr. Ostergaard said the development on Lot 2 would be designed in such a way as to enhance Rosemary Street, because they believed that was the most critical public space.  He said that would set the stage for redevelopment across the street, since once a quality development was created it would encourage further redevelopment in the immediate area.  Mr. Ostergaard then displayed additional drawings of the site.

Mr. Ostergaard then presented slides of the anatomy of the project as well as a prospective view, pointing out the residential courtyards, the live/work units, and other areas.  He said they were proposing that the Wallace Deck become a private amenity for the benefit of this project, noting the value the Town would receive from this critical location.  Mr. Ostergaard presented slides of the live/work units and described how they would be positioned, then displayed slides of the corner building and explained its possible uses.  He noted that a part of the area could have public art integrated into the area, scaled to fit the surrounding area of historic buildings.

Mr. Ostergaard said in their proposal there would be 60 condominiums on Lot 2, and on Lot 5 there would be 120 condominiums, as well as 13,000 square feet of open space.

Jeffrey Harris, Executive Vice President of Grubb Properties, noted he was a graduate of UNC, and when he thought about this project he thought about how his children would view this redevelopment.  He said that Grubb Properties was not willing to propose a project that they could not deliver, nor would they risk proposing a project that they would be unhappy for their children to see.  Mr. Harris said that was a guiding principal in their unwavering commitment to quality and design, construction and ongoing operation.

Mr. Harris said they had based their proposal on what they considered to be conservative and defensible assumptions, maintaining and protecting both the Town Council’s reputation as well as their own, noting that this was their backyard.  He said they had taken their cost estimates and had them tested by local contractors, and they were comfortable that the estimate for their project that was not yet designed was defensible and within the realm of reason.

Mr. Harris displayed slides and offered descriptions of projects they had designed and built in other cities in North Carolina to give the Council a clearer idea of what they could offer the Town, including several projects in Charlotte.

Mr. Harris gave an explanation of how they arrived at the construction cost estimates for Lot 2, the Wallace Deck, at $296, and $243 for Lot 5.  He noted that the estimate included all of Lot 5 Parking at a cost of $47.11 per square foot.  Mr. Harris provided a slide that showed the rationale for the estimates.  He said when they looked at their estimates for what it would cost to build underground parking with a questionable amount of rock, to build to the Town’s demanding standards, build in a way that was phased and allowed for continuation of some parking during construction, they believed that even though the estimate appeared high it offered a level of conservatism that they are comfortable with.

Mr. Harris said another area to be conservative about was their financial strategy, noting that major lenders do not particularly like mixed-use developments because they are perceived as risky.  He said regarding the financing strategy:

· Tenants determine rents and prices, not developers, and they had plugged in what they believed tenants would pay, noting that downtown living was in its infancy in Chapel Hill and this was virtually an untried market.

· Cost assumptions were supported by local contractors and local experience, noting that they had forced the numbers to meet the financial returns that institutional lenders and equity providers were going to require.

· End result was a proposed investment by the Town which they believed could be reduced by obtaining grants, which both Leyland and Grubb had some success in securing.

Mr. Harris said in summary, they believed they had submitted a proposal that was realistic, market-driven, and financeable.  He hoped that at the end of this process that the Town would have confidence that what they had proposed, they could deliver.  Mr. Harris said they had the experience and the willingness to enter into this partnership with the Council and with the community to create a vision that would actually be built and which would create a legacy that all could have pride in.

Council Questions

Mayor Foy asked how they would deal with the disruptions that would be created, since this was a prime location in the middle of Town and there was construction activity taking place on the nearby UNC campus as well.  He said he would like to know how they would deal with not just the displacement of parking but with the project as a whole.

Mr. Harris responded that the sites were bordered by two major thoroughfares.  He said when doing infill projects, there would be some disruption.  Mr. Harris said in lieu of traditional construction fencing, they had taken an extra step and used plywood boards and commissioned artists to paint murals, resulting in a more aesthetic appearance.

Mr. Harris said in Chapel Hill, summer was best for this type of construction, noting that the traffic and congestion was greatly reduced and they would schedule the more disruptive elements of the construction for that time.

Mr. Toledano commented that the most disruptive activity would be the blasting associated with underground parking, noting that was a major consideration for them due to the cost and implications on the Lot 5 property.  He stated they had searched for solutions and proposed what they believed was appropriate, but that other solutions might be considered.  Mr. Toledano said on the Lot 2 property, they had configured the buildings to reasonably scaled components.  He said they had particularly designed construction of the building in back to go on top of the existing parking desk to minimize interruption.  Mr. Toledano said in addition to putting a lot of thought into the phasing and proper staging, they had put a lot of thought into how the buildings could be built in order to minimize disturbance and impact.

Council Member Ward asked for a response on how the Leadership in Energy and Environmental Design (LEED) certification would be incorporated into the process, how Steven Winter and Associates would be “wrapped” into the process, and more specifically what cost implications were associated with this goal.  Mr. Toledano stated they had an ongoing relationship with Steven Winter and Associates and would integrate them into the process.  Mr. Toledano said some materials had been submitted with their information to the Council, noting that an architectural team from Steven Winters and Associates had already visited Chapel Hill and met with his staff.  He stated they had already begun exploring considerations that could be given to green or sustainable designs.

Regarding cost, Mr. Toledano said by drawing on their experience they would keep those costs as low as possible.  He said that they had recognized that there was a substantial cost, and would keep that cost down by integrating Steven Winters and Associates into the process from the very beginning.  Mr. Toledano added he believed they had put together the team to make this project happen.

Steve Maun said they had budgeted a 2 1/2 percent premium to invest in the LEED recommended initiative.  Council Member Ward asked if that was for both sites.  Mr. Maun replied that it was.

Council Member Strom said the Request for Proposals (RFP) that the Town had offered was the result of a year of planning, committee work and close consultation with SPPRE.  He said the Town had looked carefully at the numbers and the program had to be reasonably close to the financial model that had been put out with the RFP.  Council Member Strom stated that there were a few significant deviations from that model that he wanted addressed.  For example, he said from what he could determine there was no allocation for public art in the proposal.

Council Member Strom said one of the assets the Town had brought into this process was the fact that they owned the land.  He said the Town’s cash flow was acceptable to the Town and to the public because there was a cash land lease payment at the front end of this deal, and as far as he could see that was being ignored.  Council Member Strom said they were putting a completely different structure forward, and to him that was a key element and a significant deviation.

Council Member Strom noted the Council had anticipated that the development side would be a significant participator in the building of parking, and as far as he could tell they had a zero on that line as well.  He said for him those were significant obstacles, and asked how those obstacles would be addressed.

Mr. Harris stated that public art was something they incorporate into all of their projects, noting examples had been submitted with their RFP.  He said there was a budget for that and was it built into their hard cost assumptions.  Council Member Strom said that cost would be broken out at a later time.  Mr. Harris said that was correct.

Relating to the financial structure offered by SPPRE as an option, Mr. Harris said they had chosen to go with a more direct fee based scenario.  He said it was clear when reading the RFP document that minimizing risk and having clarity and certainty was of primary importance to the Town.  Mr. Harris said with all due respect to SPPRE, they were “very uncomfortable” with the 40-year lease structure proposed, noting they had found that to be an unconventional financial structure.  He said it was difficult to get lenders and investors to accept mixed use projects without complicating things further with the financial structure.

Mr. Harris noted they had recently refinanced a project and there were a number of institutional lenders and investors who refused to even quote on the request because of the mixed use nature of the project.  He said these types of projects were difficult and challenging on their own, but when you add an unconventional financial structure to them it increased the complexity in a geometric fashion.

Regarding their contribution to public parking, Mr. Harris said they were dictated to by the customers.  He said the retail tenants and condo buyers tell them what they would pay, and there was a limit to what they would pay.  Mr. Harris said they had tested the numbers and the contribution or lack thereof was a result of that.  He said they hoped to mitigate that, noting they had been successful in seeking significant grants and that was not included at this point because they were unquantifiable.  Mr. Harris said until they had a shared vision and came to an agreement on design, they would not feel comfortable quantifying those amounts.

Mr. Toledano said they had felt that it was important to lay their proposal out in a realistic and achievable way to give the Town something that worked.  He said the structure they had provided to the Town was founded in the reality of this project in real costs and real financial market considerations.  Mr. Toledano said with their proposal they were creating not only tax value but collateral value for the Town with these buildings, by their commitment to quality and creating great streetscapes and value to surrounding properties.  He said their proposal was a starting point in working towards the Town’s goals.

Council Member Harrison said he believed the Council saw the open space in these projects as public space, yet it had been referred to as “private” courtyards.  He said that was Town-owned space, and asked would the Town be compensated for that.  Mr. Ostergaard responded that the space was sufficiently removed from the street and difficult to get to, so could not really function as true public space.  He said they wanted to focus on creating a great public space by creating a great street, particularly by improving Rosemary and Henderson Streets and putting the public space on the corner.

Council Member Harrison asked what would become of the Town’s ownership of that space, and would the Town be compensated for it.  Mr. Ostergaard said that would be part of the development transaction.

Council Member Harrison said the Town did not have full control of all of these streets, particularly Franklin Street.  He said if they could not get parking on Franklin Street or could not extend curbs on Rosemary Street, what would be the alternative?  Mr. Ostergaard said they were flexible, and in their planning process would bring NCDOT in to work with them in the design process and explore alternatives.

Mr. Toledano said they could not emphasize enough that public streets were public living rooms.  He said spaces like the top of the deck could never be an extension of the public realm the way the street was.  Mr. Toledano said what they do on the street, at the street level, had to be about that direct relationship between the buildings and the space they create.

Mr. Ostergaard said there was a precedent for on-street parking on Franklin Street, and if necessary they would consider devoting some of their site to on-street parking if they were not able to get in from the existing right-of-way.  He said they wanted to make that street as pedestrian friendly as possible with safe crosswalks.

Council Member Greene said Mr. Ostergaard had indicated their designs were preliminary and they would come back to Chapel Hill and hold cherrettes.  She said let’s suppose that what came out of that public process was something other than the colonial architecture they were fond of, that something more “adventurous” than colonial art was proposed.  Council Member Greene asked what would be their response to that.  Mr. Ostergaard said that was one of the reasons for the public process, because they wanted to understand what the community’s thoughts were.  He said they would like to understand from the Council what their vision was for the future as well as the architectural syntax for the buildings.

Mr. Ostergaard said they would hope that in the end, no matter the particular architecture, that they would create very comfortable public space.  He said that in looking at Chapel Hill that there was a repeating tradition of colonial vocabulary, although some of the newer structures deviated from that.  Mr. Ostergaard said they would be quite flexible in their approach.

Council Member Greene asked Mr. Ostergaard could point to some example of projects his firm had worked on that were in a more contemporary vein that could be landmark designs.  Mr. Ostergaard said they had designed the Carnegie-Melon University Center in Pittsburgh, which was a fresh contemporary architectural vocabulary for that historic campus.  He said they could use a similar approach here, using humanly scaled patterns of openings, materials and proportions.  Mr. Ostergaard said it was a subject that they would fully embrace and work on closely with the Council.

Council Member Greene said she understood what Mr. Toledano had said about how important the streets and wide sidewalks were to enhancing the retail experience.  She said that one way to think about public space for some people was that in enhanced democracy, that it was a place people could come where they did not have to buy a cup of coffee or a rugby shirt.  Council Member Greene said what she imagined when she saw their designs was that it could be difficult for people to believe that these were places where they had permission to go unless they were shopping there.  She asked if that was a valid response, and how did they see these public spaces as they have designed them as places where people could come together.

Mr. Ostergaard said the design developed for Lot 5 directly fronted Franklin Street and invited people to come in and sit.  He said their drawings showed benches, planting beds, and fountains where people could come and sit.  Mr. Ostergaard said they had found that in the last 10 years there was a keen interest in public open space in this country, particularly for places for people to just linger and enjoy the outdoors in a passive way.  He said they would want this environment to be as richly planted and shaded as possible, although it became more difficult when you had underground parking to do substantial plantings.  Mr. Ostergaard said that was an aspect of the design that they would look at very carefully, that is creating enough depth for root structure for trees.

Mr. Ostergaard said they also wanted to pull people into public space that had activity on it that was surrounded by all kinds of interesting things, and was not just “dead and boring.”  He said for a retailer that was a positive, because people would naturally want to look into the shops.  Mr. Ostergaard said they were looking to create a space that offered relaxation but enrichment as well.

Council Member Greene asked if they would be a part of the programming for this space, or whose responsibility would it be?  Mr. Ostergaard responded that they would work directly with the Town because it was the Town’s space.  He said the space designed on Franklin Street was not the entrance to the residential units, rather it was an extension of the street lined with shops and restaurants.  Mr. Ostergaard said they deliberately designed it that way because they wanted the public space to feel as public and open as possible.  He said they see the richness of the space emerging from a design process where they find opportunities to integrate art and other creative things into the space.

Council Member Greene asked how they would propose working with a public artist, and asked what their experience was in working with a public artist through a process of coming up with public art projects.  Mr. Ostergaard said their landscape architect was working with others to manage the process of finding opportunities and selecting artists for a current project they were working on.  He said just about every institutional building they had designed they had integrated community art, particularly in community centers and university buildings.  Mr. Ostergaard said he viewed the programming phase as critical in establishing a process to first come up with ideas and then to select artists who would submit proposals for the creation of art in a public space.

Questions from the Town’s Consultant

John Stainback of SPPRE, the Town’s consultant, said he was concerned about the level of activity not being directly on Franklin Street, noting it appeared the buildings were up close to the street with activity occurring behind it.  He asked if that concerned them.  Mr. Ostergaard replied that regarding the design of the plaza, each of the outbuildings would have four or five specialty shops, and would have front doors and signage directly on Franklin Street.

Mr. Ostergaard said flexibility in retail buildings was necessary to respond to the market place and the leasing requirements of potential tenants.  He said they perceive the back areas to be the “anchor” areas where a restaurant, maybe a bookstore or an art gallery would be located.  Mr. Ostergaard said those were the destination places, and the specialty shops located up front would benefit from the traffic those anchor stores generated.  He said they believed that mixing the retail area with the public space was quite rich.

Mr. Ostergaard said another design feature that they believed was attractive was the creation of eddies of space, where you walk between buildings and have lots of corners and exposure so you can get product up front and visible.  On the Rosemary Street side, they believe that was a highly visible corner given the amount of traffic volumes there, and they believe that created the opportunity for a substantial tenant on that corner such as a specialty retail food store.

Mr. Stainback asked if the team was concerned about the scale of the proposed nine-plus story building on Franklin Street, noting that most of the buildings there were one to two stories.  Mr. Ostergaard said they had developed the retail buildings at a lower scale than the Aveda building on Franklin Street, placing the two and three-story scale of buildings directly along the edge of the street.  He said they had sat the residential tower back from the street about 80 feet.  Mr. Ostergaard said they had found a mix of building heights in Chapel Hill, noting that the Bank of America building was the same height as their proposed residential tower.  Because of that mix of heights, they had felt comfortable with setting the building back and designing it as a residential tower.  Mr. Ostergaard added that the height of the residential tower would offer a great view of the Town and the UNC campus, and those units would command premiums in the market place.

Mr. Stainback confirmed for the Council and the public that the courtyard in the back is at the fourth level and not the street level.  Mr. Ostergaard said that was correct, noting that would be one of their green roofs that would be planted, with garage space underneath.

Mr. Stainback said it appeared that the only vehicle access to Lot 5 would be from Church Street and wondered if there were any concerns about traffic impacts, specifically not having any access from Franklin or Rosemary Streets.  Mr. Ostergaard said they had looked at access off of Rosemary Street.  He noted they had created an alley that went from Rosemary to Franklin, and they could use that alley as a way to get into the garages if it was felt that was more desirable.  Mr. Ostergaard said one advantage of the alley was that it held the buildings back from the property line, as well as provided a fire truck lane for emergencies.  He said they would be happy to look at other ways to enter the garages, and believed their design offers the flexibility to go either way.

Mr. Stainback asked why Grubb assumed 30 percent equity and 70 percent debt, when 20 to 80% or even 15 to 85 percent was possible to achieve in today’s capital markets.  Mr. Harris responded that from a construction standpoint they generally build somewhere in the range of 30 percent equity and 70 percent debt to cost to satisfy their own conservatism.  He said in times when real estate was a favorite asset class there were lenders who become more aggressive, and if they were to pre-sell a significant number of the condominiums they could certainly reduce the equity component in the ranges Mr. Stainback had spoken of.  Mr. Harris said they looked at these numbers as a starting point, and they had wanted to present a conservative picture.  He said they hoped to make the economics better for all through refinement of the concept and financing plans.  Mr. Harris said they had not wanted to be aggressive in their assumptions.

Mr. Stainback said if the equity number goes down and their returns go up, were they willing share that with the Town.  Mr. Harris said they were willing to do so.

Mr. Stainback said there was a 10 percent contingency in hard and soft costs, and asked why it was so high.  Mr. Harris said that was simply a starting point when dealing with a conceptual design, and as they worked through the process and got to the design development stage and then the construction stage those contingency numbers are reduced.  But at this level, he said, with no input from the Town Council or the public, this fell into an area of conservatism on their part because they didn’t know exactly what they would build.

Mr. Stainback said if the contingencies went down and their profits went up, again would they be willing to negotiate a sharing of that savings.  Mr. Harris responded that was correct, noting they had planned for market dictated returns, both by their lenders and their equity partner.  He said they had certain criteria dictated to them through the capital markets, and to the extent that they could reduce the cost and increase the revenues, then those excess profits would be shared with the Town.

Mr. Stainback said in their materials, they had stated that the interest rate on the construction loan was typically the LIBOR rate plus 2.2.  He said they had checked the LIBOR rate on May 19 and it was at 3 percent so the total Grubb pro forma interest rate should have been 5.2 percent yet they had stated it at 6.5 percent.  He asked for an explanation.  Mr. Harris said they had envisioned that the design process would take at least 12 months and they were in a rising interest rate environment, so again this was another area where their proposal offered a layer of conservatism.

Mr. Stainback said they had used 66 percent efficiency on Lot 5 condominium units, which was a significant reduction from industry standards, and asked if that was part of the conservative assumptions.  He noted that industry standards were at 78 percent to 80 percent.  Mr. Harris asked if that was for overall spatial efficiency.  Mr. Stainback replied that was correct.  Mr. Toledano replied they would have to look at the detail to answer that, noting that he did not know if that included storage space or others types of spaces.

Mr. Stainback said with all of these conservative assumptions, please explain the basis of a projected 72.5 percent return on equity for the Wallace Deck and a 77 percent return on equity for Lot 5.  Mr. Harris said typically with condominiums the sale process was so short that the IRR was not a metric that they spend a lot of time on.  He said regarding retail, they did use a more typical institutional 10-year develop and hold horizon and looked at both return on costs and IRR for that.

Mr. Stainback said even after providing examples of the types of approval rights designed by the Town in the RFP, Grubb’s description of the Town’s approval rights only addressed design issues.  He asked did Grubb intend to limit the Town’s control of the project to only design.  Mr. Toledano said that was just a simple starting point for them.  He said most of their work was in public/private partnerships so the simplest thing for them was to immediately begin developing that approval process.  Mr. Toledano said they were focused on the design at the time, and was not intended to say they would limit the Town’s approval rights to just design.

Mr. Harris commented they had also referenced that all the other existing Town safeguards, such as the permitting process, would not change.  He said beyond the initial design input, the Town had various milestones at which they had input for any project and they would not propose that this one would be any different.  Mr. Harris added that they would want the Town’s input on much more than just the design.

Mr. Stainback said the RFP described in detail how important financial safeguards were to the Town.  Yet, he said, they had provided only one “vague” paragraph.  Mr. Stainback asked if there was a reason for that.  Mr. Harris said they knew this was largely guesswork at the initial stage, and knew that a big part of this would be determined during negotiations as to what were the critical points.  He said they focus on design and finance, recognizing that those were areas that would be developed in conjunction with the Town, so they did not put as much emphasis on it at this point.

Mr. Harris said that their reputation perhaps provides the Town with its greatest safeguard.  He said that Grubb Properties had never had an investor lose money and had never had a bank lose money.  Mr. Harris said this was their own money that would be invested side by side with the Town.  He said it was clear that they build a fair amount of conservatism as well as realism into the numbers in this proposal.  Mr. Harris said if they were attempting to “fool” an outside investor, they would be fooling themselves first.

Questions by Members of the Council

Council Member Verkerk said one of the things that concerned her about our downtown was that unless it was a bar or a restaurant, it tended to “shut down” at 6 p.m.  She asked had they thought about how to keep it more active downtown, such as having the retail shops open until 10 p.m. for instance, that did not involve alcohol or food.  Mr. Maun commented that was a dilemma for most towns, because the main street was a collection of many different stores and owners.  He said when you have one entity in a management role that dictates the rules, you could set the times that stores could open and close.  Mr. Maun said that because of this management structure, shops could be open later.

Council Member Verkerk said the Council Committee had discussed the idea of using Church Street as a weekend venue.  She asked was that considered, noting that if Church Street was the only entrance to the parking then that would preclude that use.  Mr. Ostergaard said they would like to hear the Committee’s vision of that idea as well as for other streets.  He reminded the Council that the vitality of the downtown would be directly related to the amount of residential they were able to building in the downtown.  Mr. Ostergaard said many towns had found that the vitality was enhanced when a 24-hour environment was produced.

Mr. Harris added that 20 years ago he had worked in downtown Charlotte, and at 5:05 p.m. the streets would quickly empty.  But today, he said, the evenings in the Charlotte downtown were “shoulder to shoulder until 10:00 or 11:00 at night.  Mr. Harris said the Charlotte downtown residential area where owners live there and act as the “eyes on the street” had created additional perceived safety and vitality.

Council Member Verkerk said when she was working with the Public Arts Commission on downtown public art they had wondered how that art would survive a NCAA national basketball championship celebration, which it did.  She asked if they had put any thought into such a scenario, noting that such “parties” took place about three times a year.  Council Member Verkerk said she was not sure she wanted her condominium above 45,000 “screaming” Tarheels.  Mr. Ostergaard said those celebrations were few in number and part of the character of Chapel Hill and its downtown.  He said one of things to consider when planning the public space was to plan for special events with adequate power and other sources of energy, and adequate space to accommodate special events, booths, and stage areas.

Mr. Ostergaard said the Council may want to think of the downtown as an area that could be closed off for festivals and celebrations, and in that case to plan carefully where they want people to congregate.  He said this was something that could be addressed and not left to chance.

Mr. Harris added that their two-day design meeting in Chapel Hill had coincided with UNC’s winning of the NCAA Basketball Championship and the resulting downtown celebration.  He said they were on Franklin Street that evening and believed the event had been very well managed.

Mr. Maun said he had seen several of these types of celebrations in other cities, and the one this year in Chapel Hill was extremely civilized, joyous, and well managed.

Mayor pro tem Wiggins said several of the Council wanted to again see a grocery store in the downtown area.  She said that a “specialty” grocery store had been mentioned earlier, and to her that meant high end, expensive, pre-prepared and take-out items.  Mayor pro tem Wiggins said given the location of such a store, it would be at the entrance of the Northside neighborhood which was a moderate to low-income neighborhood.  She said it would be more desirable to have a vendor that would offer not only high-end specialty items but also items that would be more practical for that neighborhood.  Mayor pro tem Wiggins said that would speak to Council Member Greene’s concern that the Town was not going to create a space that was high end and catered to only the wealthy.

Mayor pro tem Wiggins said they had mentioned they wanted to minimize the blasting when construction started.  She asked if they took responsibility for any collateral damage that surrounding merchants or property owners might experience as a result of such blasting.  Mr. Toledano said he had been involved in such work in the past, and the most important thing was a proactive program to control that.  He said that would involve making sure everyone knew the schedule of the work and being proactive in how it was managed.  Mr. Toledano said ultimately in construction, there were forms of insurance associated with this type of work, to cover any type of damage during construction whether it was blasting or any thing else.

Mayor pro tem Wiggins said this construction would have gone on for some time and impact businesses, pedestrians and traffic.  She said she believed it was mentioned that they would have someone on their staff that would be responsible for relating to the community during the project to minimize these concerns.  Mr. Harris said that their preferred contractor, Rogers Builders, had indicated that they would bring in a specialty contracting firm that would assist in conducting the infill blasting jobs.  He said they would bring in any resources necessary to minimize impacts of the construction.

Mr. Toledano said regarding a grocery or market, they had tried to focus on the variety and choice that would become available by having different types of retail.  He said a good point had been made about public space and how it was used, but it was hard to anticipate how people would enjoy using those spaces.  Mr. Toledano said how ever the space was used, this was a public realm, and the best thing they could do was to create a space that would be used in many different ways by many different types of people.

Mayor pro tem Wiggins commented that she did not believe the grocery store had to be an “either/or”, rather it could be both.  She said there were some large chains of stores that could help to bring the cost down while providing specialty items as well.  Mr. Harris stated that they envision the retail to be an amenity to the residential above it, and that Grubb Properties placed emphasis on the mix of individual retailers.  He said that people wanted variety and uniqueness, which would add color and character to the area.  Mr. Harris said they had hoped that some of these spaces would attract those types of retailers, rather than national chains.

Council Member Kleinschmidt said he had perceived a lack of diversity on the Lot 5 development proposal and a lack of integrated affordable housing in the residential programming, which he found problematic.  He said when he had looked at it the project in its entirety, it appeared to be a “five diamond resort.”  Council Member Kleinschmidt there were $250,000-plus residential units in today’s prices, which would be even more expensive in 2008.  He said what he saw was high-end, chain retailers on Franklin Street and he was concerned about that.  Council Member Kleinschmidt said what was needed was diversity in retail and residential.  He asked what could be done about the integration into residential on Rosemary Street, and if that was not possible, why not?

Mr. Toledano said he would not say it was not possible, adding it would involve developing a program of who such units would be marketed to and who would be involved.  He said although they had not suggested subsidies, often for-sale affordable housing required gap financing and subsidies that come from neutral participation with non-profits.  Mr. Toledano said they had started from the vantage point of what kind of opportunities there were to create affordable housing with a certain theme or that might be marketable to a certain group.  He said there were many groups that would be interested in affordable housing.

Mr. Toledano said he was interested in the larger theme of focusing on the arts and the development of the arts commons downtown, and all of the things that were happening in conjunction to create an artistic community downtown.  He said they had looked at the top of the Wallace Deck as an exciting environment for artists to live and work downtown.  Mr. Toledano stated that from the experience of trying to formulate a strategy for affordable housing, it was more an idea of creating a vision and thinking of who would be involved in that.

Mr. Toledano said it had been suggested to him by a UNC faculty member that a residential area downtown would be attractive to junior faculty members or others who wanted to live close to the campus and walk where they wanted to go.  He suggested that we should think about creating an affordable community with a collection of affordable units that would help avoid any type of stigma or separation, and would be a positive and exciting aspect of the community.

Council Member Kleinschmidt said the Council’s commitment to that integration was well documented.  He said regarding the Wallace Deck, there was a “beautiful” description of the residential units rising above the street, noting he would like to live there himself.  But, Council Member Kleinschmidt said, he was not an artist and did not believe a lot of artists would be living there.  Mr. Ostergaard stated that those types of units appeal to a broad range of potential buyers and renters.  He said that “soft loft” living was becoming increasingly popular, and they would attract not only artists but young professionals and those looking for something different than an ordinary apartment or condominium.

Mr. Ostergaard said what they were trying to bring to the two sites was a diversity of unit types to respond to a broad range of the market.  He added that affordable units were best when they were not distinguishable from market rate units in their design and the way they were affordable was in the lease agreement or the financing structure for that particular tenant.  Mr. Ostergaard said their early design work had focused on creating a rich diversity of units offering lots of different opportunities to different market segments.  He said they were flexible in terms of where the affordable units were located and the types of units that might be offered, such as one, two, or three bedroom units.

Council Member Kleinschmidt asked if they saw the affordable element in the Wallace Deck to be integrated throughout these different types of units.  Mr. Ostergaard responded yes, adding that a more detailed residential study would help them understand what the character and profile of these affordable units would be.  He said many times they rely on market studies so that they could match the demand.  Mr. Ostergaard said they wanted to get the mix of units right and be flexible.

Council Member Hill stated that by the time this project was begun, there may well be an inclusionary zoning ordinance in place that would be specific in its requirements.  He said they did not seem to be familiar with what the Council had done here in Chapel Hill, noting that by and large most of the affordable units here were not purchased by artists.  Council Member Hill said as someone who lived downtown, he believed that most of the people who chose to live there would not have a problem with the occasional street parties and would most likely be excited about them.

Council Member Hill said to clarify a point, it had sounded as if they had said that the 11 to 12 story building on Lot 5 would be about the same height as the Bank of America building.  Mr. Ostergaard said they had measured the height from a 3-D model developed by the Town and used that to make that assumption.

Council Member Hill said he assumed that was measured from its base on Rosemary Street to its top on Franklin Street.  He said he wanted to clarify that, because thinking about a building that was 12 stories would give some people pause, but having a frame of reference would make them more comfortable with it.

Mr. Harris said he wanted to clarify that the Elizabeth Avenue redevelopment they had worked on in Charlotte did have a percentage of the residential project that was required to be affordable housing, so they did have experience in that specific example.  He said in addition, they were working with the Charlotte Housing Authority on a project that would have an affordable housing component.  Mr. Harris said what they had offered regarding having artists living in the downtown was not an exclusionary requirement that they would dictate on the affordable housing, but rather was a creative way to think about the emphasis that was expressed on how these projects should foster public art.  He said what they had tried to do was think “outside the box” and offer some different ideas.  Mr. Harris said they knew they would work closely with the Council to develop a shared vision.

Mayor Foy noted that the Council would take a break, and after that time the Council would restructure its agenda to allow the next presenters equal time.

The Council took a break at 10:25 a.m.

Mayor Foy called the meeting to order at 10:40 a.m.  He noted that Ram Development Company would now make their presentation, lasting until approximately 11:25 a.m.

RAM Development Company Presentation

Ivy Greaner, Managing Partner of Ram Development Company, noted members of her firm that would be making presentations today.  She introduced Casey Cummings, President of RAM Development Company, Peter Cummings, Chairman of Ram Development Company, and Susan Tjarksen-Russos, Vice President of Development, Eric Toth, Development Associate, and Alan Moore, Site Acquisition Associate based in North Carolina.

Ms. Greaner said they had been actively working in North Carolina for the last few years, noting they had built a project in Brian Creek, a student housing project in Raleigh, and were at this time actively working on a project in Chapel Hill.  She said when they became aware of the Request for Qualifications (RFQ), they believed it would be something exciting for their company to pursue to help re-energize Chapel Hill and be a part of its future.

Ms. Greaner said the RFQ had given them a clear idea of what Chapel Hill’s vision was and they had worked diligently to work within that framework.  She said they had worked on this project for the past four months, meeting with citizens, shop owners, Town leaders, UNC officials, medical center officials, as well as John Stainback.  Ms. Greaner said that all had been enthusiastic and it was clear this was an important project for the Town.  She then introduced Susan Tjarksen-Russos, Vice President of Development, who was spearheading this project for RAM Development Company.

Ms. Tjarksen-Russos said when coming to Chapel Hill their first thought was to assemble a team of proven professionals.  She noted their architects were Duany Plater-Zyberk of Charlotte, NC, Office Design Associates of Raleigh, NC, and GGA Architects, Chapel Hill, NC.  Ms. Tjarksen-Russos noted their contractor was Skanska USA of Durham, NC.  She added that their engineers were local as well.

Ms. Tjarksen-Russos said they had clearly heard the Town’s desire that these professionals be LEED accredited.  She said most of their consultants have LEED-accredited members on their staffs, noting that Duany Plater-Zyberk and Cline Design both have such staff, and more importantly their contractor, Skanska USA, does as well.  Ms. Tjarksen-Russos noted that Skanska was the leading “green” builder in the United States, with 50 LEED-accredited professionals on their staff, with eight located in North Carolina.  She stated that Skanska had completed 35 LEED Silver Projects, and was the only contractor to have completed such projects in North Carolina.

Ms. Tjarksen-Russos said the second part of their approach was public comment and involvement, with a goal of learning about Chapel Hill and establishing their commitment to Chapel Hill.  She said they had met with real estate agents and visited all types of developments in Chapel Hill, then looked at that information to decide what they thought worked and did not work.  More importantly, Ms. Tjarksen-Russos said, they had asked the public what they liked and did not like.  She said they sought out people who could help them better understand what the goals were, specifically what the Town wanted to see built on Lot 5 and the Wallace Deck.

Ms. Tjarksen-Russos said they had met with Janet Kagan of the Public Arts Commission to discuss the process of choosing various artists and the types of art that could be used in a public space.  She said they had met with Robert Dowling of Orange Community Housing and Land Trust, and had learned about the minimum size affordable units needed to be as well their price range, and how much was needed to market them for closing.

Ms. Tjarksen-Russos said they had come to Chapel Hill the end of March and conducted a three-day design workshop.  She said senior staff and design professionals then formulated the best approach based on Chapel Hill’s design principles.  Ms. Tjarksen-Russos said after choosing a specific and talking with various individuals in the community, they decided on program goals of which there were five:

· Activated program space, which needed to be meaningful and visible, and serve a variety of purposes that were interactive, whether it be a downtown market, a book fair or art fair, or just useable space.

· Quality living space that would be a place that anyone in the community could call home.

· Thriving retail space that had to be vibrant and local, whether outdoor cafes and restaurants or specialty shops.

· Connection of Rosemary Street to Franklin Street, which they had provided for and kept all of the access to buildings off of Church Street that would allow for street closings for special events.

· Sustainable design which would include obtaining LEED Silver Certification, which they believe they would achieve.

Ms. Tjarksen-Russos introduced Tom Lowe, Director of Town Planning with Duany Plater-Zyberk, to walk the Council through their specific program plans.

Mr. Lowe said he was impressed with the group of professionals that RAM Development had put together, noting it was obvious to him that they were fully equipped to take on a project such as this.  He said that together they had had a phenomenal level of success in exploring ideas and had made a great deal of progress, which fueled their “creative juices.”  Mr. Lowe said they were looking forward to interacting even further.

Mr. Lowe said when talking with people in the community about this project, they had been advised to step back and look at the big picture, to think about creating a framework in relationship to what was going on around it.  In response, they had done a broad brush look at Franklin Street and the downtown, and had determined that Franklin Street running east to west was really a collection of main streets that are walkable, with one section containing student shops, the middle section where Lot 5 was located, then the end section which contained restaurants and other entertainment.  Mr. Lowe said those sections functioned as separate but connected strolling districts.  He noted that the center section was clearly missing “teeth,” and they were conscientious about stepping back and looking at it in an overall perspective as well as looking at the east/west and north/south connections.

Mr. Lowe noted they had paid particular attention to the site around Lot 5 because of the large parking lot in front of University Square.  He said that even with the best urban design on the site the fact was that until you look at what was happening around the site and create a catalyst project that would then reach out and influence the activities around it and enhance the greater whole, then the project would not be completely successful.

Therefore, Mr. Lowe said their creative design created a square in the middle of Franklin Street where the traffic was subdivided and the crossings were easier for pedestrians.  He said instead of being a parking lot, Lot 5 would enhance retail not only on its site, but in University Square as well.  Mr. Lowe said it would complement Franklin Street and accommodate a significant amount of activities and public events.

Mr. Lowe said he believed they had achieved their goal of putting forth two “great” designs.  For the Wallace Deck, they had developed the residential units within the framework of the existing structure and had retained the “wonderful” public space in the center to link it with the greater community by connecting it both to Amber Alley and the Post Office Alley, as well as the other connections around the site including Rosemary Street and Henderson Street.

Mr. Lowe then presented details on the Wallace Deck building program:

            Residential Development

                        Market Rate Fee-Sale Condominium Units                90 units/204,147 square feet

                        Workforce Housing Fee-Sale Condominiums            18 units/19,470 square feet

            Retail/Dining/Entertainment Development                            3,500 square feet

            Open Space/Plaza Area                                                           12,155 square feet

            Private Gardens                                                                      4,000 square feet

            Parking Spaces Supplied (includes 51 new spaces)                351

            Floor Area Ratio                                                                     2.2

Mr. Lowe displayed photos of the elevation of the project, and gave a brief description of its design.  He noted that they believed this significant footprint would complement what was happening across the street and draw people back to Rosemary Street.  Mr. Lowe noted this would create a people place and a strolling place.

Mr. Lowe said they had been excited about the public space, noting the current public space turned in on itself.  He stated that they had redesigned the public space so that the view out across the top of the hill would be framed so that the vista could be enjoyed.  Mr. Lowe said this would help to celebrate community life as well as the Town’s unique location within the Piedmont.  He exhibited drawings of the scale of the project, noting it was less intrusive than the Bank of America building.

Regarding Lot 5, they had developed a design that put the open space and buildings within the framework of the property itself.  He noted that they had wanted to pull the public space out of the center of the block in order to make it as public as possible.  Mr. Lowe exhibited drawings of their design, noting that it extended and connected the two corners of the site it in a proactive way and enhanced it by creating a covered arcade and sidewalk that made it even more comfortable for people to use.

Mr. Lowe then presented details on the Lot 5 building program:

            Residential Development

                        Market Rate Fee-Sale Condominium Units                107 units/158,122 square feet

                        Workforce Housing Fee Sale Condominiums            17 units/16,264 square feet

            Retail/Dining/Entertainment Development                            27,320 square feet

            Open Space/Plaza Area                                                           32,550 square feet

            Parking Spaces Supplied (includes 51 new spaces)                422

            Floor Area Ratio                                                                     2.56

Mr. Lowe displayed additional drawings of the design, noting they had broken the building down to a variety of building heights so that it would resemble the small, medium and large heights of other buildings in Town.  He said by placing the housing in the three different heights of buildings, as well as where they were located on the site, allowed them to provide three distinct housing choices to people such as loft-type housing, condominium housing, and family and workforce housing.

Mr. Lowe exhibited drawings of the view from Rosemary Street, noting the scale was complimentary to the area and it provided a continuous pedestrian path all along the site.  He displayed a drawing of the view from Franklin Street as well.  Mr. Lowe said they had developed alternative elevations that depicted more Town character as well as more urban character.  He said they were very interested in getting opinions from the Council and the community on what would work best for Chapel Hill.  Mr. Lowe said once they moved further into the process, he believed these designs would become more interesting and innovative.

Casey Cummings provided a financial summary of their proposal, beginning with project costs:

	Lot Five	Wallace Deck	Total
Prepaid Ground Lease	$  4,000,000	$  3,000,000	$  7,000,000
Hard Costs	37,711,000	16,058,000	51,600,000
Soft Costs	3,560,000	4,500,000	13,060,000
Total Costs	$50,271,000	$24,459,000	$74,730,000

Mr. Cummings then described how the total of $74,730,000 would get funded, displaying a chart of the source of funds:

	Lot Five	Wallace Deck	Total
Chapel Hill
Prepaid Ground Lease	$ 4,000,000	$ 3,000,000	$ 7,000,000
Wallace Deck Bond Retirement	--	150,000	150,000
Permit and Impact Fees	183,000	94,000	178,000
Bonds/Grants/Alternative Sources	630,000	456,000	1,086,000
Subtotal – Chapel Hill	$ 4,813,000	$ 3,700,000	$ 8,514,000
RAM
Equity	$ 8,420,000	$ 4,396,000	$13,226,000
Debt	33,685,000	29,315,000	53,000,000
Subtotal – RAM	42,105,000	24,111,000	66,226,000
Grand Total	$46,918,000	$27,811,000	$74,730,000

Mr. Cummings said he wanted to explain the reasoning behind the $8,514,000 that the Town was being asked to provide.  He stated it was important to understand that for every dollar the Town provided there was a connection between that dollar and why that part of the program was in fact the Town’s responsibility.  Mr. Cummings said one reason was the replacement of the 177 parking spaces on the Lot 5 parcel, and a second was the cost of providing parking underground.  He said they were asking the Town to shoulder the cost of exactly one half of the cost of creating the public space, noting that would be a joint decision shared between RAM Development and the Town and therefore should be a joint financial responsibility.  Mr. Cummings said they were asking the Town to use their gift of $150,000 to retire the debt on the Wallace Deck.

Mr. Cummings provided a brief overview of the revenue associated with the project, noting the sale of the condominiums and ongoing retail revenue.  He presented a description of the expected retail revenue in brief detail, estimated to be $108,030,000 over a 40-year period.

Mr. Cummings then offered the reasons they believed the Town should choose RAM Development for this project.  He said the Town would not be choosing just RAM Development, it would be choosing their team as well, which they had selected with care.  Mr. Cummings noted that the team consisted of not only the professional team but of the stakeholders and constituents of the community.  He said there were five main reasons why the Town should choose RAM Development Company.

1. Public Involvement.  Mr. Cummings said that public involvement was not something they did as a reaction to the requirements of the process rather it was a part of the fabric of their company.  He said it was important, it was the right thing to do, it was good for business and good for the community.  As examples of how they had already involved the community, Mr. Cummings described the many hours his team had spent in Chapel Hill preparing their RFP.

Mr. Cummings noted they had offered to evenly divide the cost of the public space, they had 100% funded the $630,000 for public art, and they had provided a $200,000 grant toward the programming of the public space.

2. Commitment to the Community.  Mr. Cummings said they had a direct ongoing personal commitment to all of the communities where they were active.  He said that this was a part of the fabric of the principles of RAM Development.  Mr. Cummings said the public display and performance of art was important to the vibrancy of a community and was important to their project.  He said one example of their commitment was the attention they had paid to workforce housing, noting they were happy to be able to participate in that in a real and meaningful way.

3. Long-term Owners.  Mr. Cummings said he was a fourth-generation real estate family, and in fact had redeveloped a property in 1999 that his grandfather had developed in 1958.  He said they knew how to make decisions that were in the best long-term interest of the community.  Mr. Cummings said it was important to know they could take the “long view”, such as underground parking, in order to plan for success.

4. Principals on the Ground.  Mr. Cummings noted there were four corporate principles and five company principals of the project.  He said the five company principals, his father, Ms. Greaner, Mike Hammond, Ms. Tjarksen-Russos and himself, would have a direct financial interest in the project.  Mr. Cummings said their operating plan, their leasing plan, their management plan and their development plan all rely on the participation of company principals.  He said although it was important to partner with other organizations and professionals, they did not outsource their relationship with the customer, but handle it directly.  Mr. Cummings said that allowed them to make decisions quicker and react to realities in the market place.

5. Promotes Private Investment and Minimizes Public Risk.  Mr. Cummings said this was an important difference between RAM Development the other respondent to the RFP.  He noted that the Town’s net investment was $1,086,000 and he had described the rationale behind every dollar of the $8,514,000 that they were asking the Town to commit.  Mr. Cummings stated that the Town would recoup that investment very quickly, most likely within the first three to four years.

Mr. Cummings said they had a deep conviction in the market, in their plan, in their assembled team, and in their ability to execute the plan.  He said that was why they were willing to take on the level of risk that they would be undertaking.

Mr. Cummings commented that if there was a case where RAM Development received a windfall profit in excess of 15%, they would share that windfall with the Town at a 20% rate.  He said they were not projecting to receive such a windfall.

Questions from the Town’s Consultant

Mr. Stainback said he believed RAM Development Company’s urban design plan was good, the scale of the buildings along Franklin and Rosemary was responsive, but was disappointed with the renderings.  He asked who was responsible for producing those.  Mr. Lowe responded the renderings had different personalities because they were prepared by different people.  He said some where done on a computer using software, others were drawn by hand using watercolors.  Mr. Lowe said it was their intention to send a variety of messages by using that technique.

Mr. Stainback asked Mr. Lowe if his firm was responsible for the urban design plan.  Mr. Lowe responded that it had been a team effort from the very beginning.  He said they had facilitated the design work and testing ideas, but one particular person or entity was responsible, repeating that it had been a team effort.

Mr. Stainback said regarding the activities such as outdoor cafes along Franklin Street and Church Street, that the renderings had shown the buildings as if they were retail shops with no activity on the street.  He asked if there was a reason for that.  Mr. Cummings noted that the renderings had been completed at the end of their process, because they had taken seriously the process they had gone through.  He explained that some of the perspectives showed a view from Church Street into the open space where activity was depicted.  Mr. Stainback responded that he saw his point.

Mr. Stainback said that RAM had proposed 27,000 square feet of retail space on Lot 5 but had allocated only 70 parking spaces in the garage area and 12 spaces along Church Street for a total of 82 spaces.  He said using the industry standard ratio of four parking spaces to 1,000 square feet the requirement would be 108 parking spaces.  Mr. Cummings said the Town’s Code called for 3 per 1,000 as a minimum.  He said it was important to note that they had proposed in addition to replacing the 177 spaces that were open to the public, that they add the 72 just mentioned.  Mr. Cummings said their parking analysis did not contemplate any shared parking, and obviously the peak times for residential uses could be different from retail uses.  He said he believed they had provided an adequate amount of parking from an urban perspective, and that it was probably above and beyond what would typically be provided in urban mixed-use projects.

Mr. Stainback asked why RAM used different CAP rates for the sale of the retail component at 7.5 percent and then calculated the land lease payments using 8.5 percent.  Mr. Cummings said they had showed the valuation of the retail at a 7.5 percent CAP rate, which was what they believed to be the value today.  Since the payment to the Town to extinguish the ground lease was derived by taking the ground lease payments and capitalizing them over a specified period of time, he said, they had felt it was appropriate since they were agreeing to that essentially in perpetuity to use a more normalized capitalization rate.  Mr. Cummings said looking at the past 10 to 20 years, the capitalization rate was 8.5 percent to 8.75 percent.

Mr. Stainback asked RAM to explain the rationale of requiring the Town to cover 50 percent of the cost of public space.  Mr. Cummings said there were two reasons.   The first, he said, was because it was public space and they believed the public should participate in the cost of it.  Mr. Cummings said the second reason was that while they did not believe they would be consulting with the Town on what type of appliance package to use inside the condominiums, for example, the decision of what in fact was installed in the public space would be a joint decision.  He said when such a joint decision was made, they believed that the responsibility for that decision should be held jointly.

Mr. Stainback said their projected return on cost for the Wallace Deck expansion was low, and asked what they were trying to communicate.  He asked were they saying this was an uphill battle.  Mr. Cummings said the projection was low, but they had wanted their proposal to be as comprehensive as possible.  He said they felt strongly enough about the significance of this project to their company that they were willing to accept a lower return.  Mr. Cummings said he believed the returns were understated although they were derived from an analysis of comparables.  He said that most of their experience with infill development suggests that you can take the comparables and throw them out, because they have nothing to do with what retailers are willing to pay when you execute well.  Mr. Cummings said they were confident that they were going to do much better that what was shown in the proposal.

Mr. Stainback commented that it was important to clarify that the $150,000 payoff of the bonds for the Wallace Deck was not true.  He said it was somewhat confusing in the RFP and that was something they would have to resolve.  Mr. Stainback noted that the $150,000 was actually the income for one year from Lot 5.

Mr. Stainback asked if they were expecting that the Town maintain and be responsible for programming events in the Lot 5 public space.  Mr. Cummings said no, that their thought was to build in a “tiering” of owner associations.  For instance, he said, there would be some improvements that the condominium owners association would be responsible for, and then others that would be shared with the condominium association and the ownership of the retail.  Mr. Cummings said in the particular case of the public space, he said they had contemplated the maintenance would be handled by them.  He said they would be responsible for the cost to maintain the space.  Mr. Cummings said as the landlord or real estate development, they did not feel it was appropriate for them to be solely responsible for programming the space.  He said they believed it was important to create a collaboration between the variety of arts organizations and/or the Town to set up some sort of ongoing effort to program and fund the public space.

Mr. Stainback asked that RAM confirm that the homeowners association would own and manage the open space directly related to the housing.  Mr. Cummings replied that was true.

Questions from Members of the Council

Mayor Foy asked if all of the parking on Lot 5 was underground.  Mr. Cummings noted that was correct, except for the 12 spaces located on Church Street.

Mayor Foy asked where the access was for the underground parking.  Mr. Lowe responded that access was from Rosemary Street or from Franklin Street, since it was basically a mid-block lane that carried all the way through the parking area.

Mayor Foy asked if that meant that there was no primary service entrance.  Mr. Cummings said their proposal was that the primary service access would be from Rosemary Street.  Ms. Tjarksen-Russos said the main reason that access was provide from Franklin Street was if the bank decided it wanted to be at this site that access would provide a drive-through lane.

Mayor Foy asked what their intention was in providing them with Appendix 1 where they show the Franklin Square concept.  Mr. Cummings said they wanted to provide the idea of “what if,” so that the Council could see what might be possible.  He said their proposal had followed the strict guidelines set out in the RFP, but they had wanted to provide the Council with the opportunity to think about “what if.”

Mayor Foy said there was a rendering of how the deck faces Rosemary Street.  He said it seemed as if they had given up on making that street function.  Mayor Foy said at some point there would be redevelopment across the street, and it appeared that would face the deck.  Mr. Cummings said because of the right-of-way they were not able to extend the townhomes down the street.  He said the gesture they did make, noted in a rendering behind tab 2 on page 15 in their proposal, was that in front of one of the residential buildings there was a pedestrian walkway created that would be a future connection to the Bank of America building.  Mr. Cummings said although that did not address the issues at grade, it did provide a pedestrian connection which was one of the goals stated in the RFP.

Council Member Verkerk asked about the issue of getting activity downtown after 6:00 p.m. that did not involve just bars and restaurants.  Mr. Lowe said he wanted to respond to that from the urban point of view.  He said that the central district around Lot 5 was a void at this point, and believed that the type of project that can happen on the site in terms of being a catalyst would be the connector.  Mr. Lowe said in order for people to come and visit it, they have to know that there is enough there for them to spend several hours.  Mr. Lowe stated that once you establish this connection so that the strolling district was extended out, he believed it would reach the tipping point of where there was enough to do and that broader goal could be achieved.

Mr. Cummings added that when they do the leasing of their projects, they spend a lot of time thinking about tenant mix.  He said there are many examples of great public space where no one took responsibility for programming it.  Mr. Cummings said if you were looking for things to do, then you have to be a catalyst for that to happen.  He said he believed the catalyst would be their commitment to programming that space.

Council Member Verkerk asked if they had any plans or ideas of how to incorporate public art into the fabric of the open space and buildings.  She noted that many believe that public art had to be a painting or sculpture or something like that.  Josh Gurlitz of GGA Architects said their ideas and plans were very similar to the way that the Public Arts Commission integrates art into Town projects.  He said that everyone on the team firmly believed that integrating public art had to be done from the very beginning of the project.  Mr. Gurlitz said they strongly recommended that the selection process begin so that the artists that would be participating could participate with the design team early in the project.

Mr. Gurlitz said they did not see public art as just a sculpture or the like, but did understand that people who are doing public art today like their art to be integrated into buildings, public space and open space and wanted people to perceive it that way.  He said for those reasons they wanted the artist or artists involved from the beginning so that art could not only be integrated into the buildings but be free-standing as well.

Ms. Tjarksen-Russos noted as an example that a private individual had the McDade House stored in a barn.  She said perhaps those bricks and old timbers could be integrated into this public art, maybe in an archway or in a seating arrangement.  Ms. Tjarksen-Russos said they had been in contact with the University’s artist, and perhaps the Town could take advantage of art that could be an extension of what was happening on the campus.

Council Member Greene thanked RAM for the rendering provided in Appendix 1.  She said that although what it depicted probably could not be done in their lifetime, it showed that they had a fundamental understanding that their potential partner was a public entity and that this was not a commercial development where public space might mean wide sidewalks.

Council Member Greene, referring to Sections 2.2a and 2.2b in the proposal, said RAM had responded to the question of what they believed would be the extraordinary circumstances they would face here.  She said she believed their specific concerns were “right on the money,” but their general concerns she had a question about.  Council Member Greene quoted RAM’s response that some general concerns were: (a) using the Chapel Hill Comprehensive Plan, the Downtown Small Area Plan, and the Design Guidelines for guidance; (b) concerns and directives expressed in the RFP and RFQ; and (c) concerns about the Town’s interests stated in public forums.  She asked what the specific concerns were that they referred to.

Mr. Cummings responded that regarding (a), rather than it being a concern it was more of a consideration.  He said they realized that in a public/private partnership there had in the past been a perception that municipalities create rules and then excuse themselves from those rules.  Mr. Cummings said they wanted to be sure as they moved through the process that they could work with the Town within those established guidelines.

Regarding (b) and (c), Mr. Cummings said they were just restating the concerns and considerations that were expressed in the Town’s materials.  He said they were trying to make the point that they shared the same concerns as the Town.

Council Member Greene said she appreciated the way that RAM’s presentation had related the design to the neighboring areas, and that she believed that showed that they were interested in the Town’s bigger design process.  She said in the designs they say in Section 2.2a under Design response that they had chosen “an evolved version of historic downtown buildings” as their basis.  Council Member Greene asked how they perceived working with the Town to evolve those designs even further.

Mr. Lowe said they felt like they needed several “feedback loops” with the stakeholders in order to get it right.  He said at this point, they were at the first or second feedback loop in terms of getting the feedback that they needed.  Mr. Lowe said the next step would be to continue to test the ideas with a greater audience and reach consensus that way.  He said the good ideas rise to the top through public consensus.

Mr. Cummings added that they had spent a lot of time discussing the process and establishing program goals.  He said it was important to keep those in the forefront.  Mr. Cummings said, for instance, what he liked as public art someone else may not, and often it was a challenge to choose between two excellent solutions, and ultimately it would come down to taste.  He said it was the same with design.  Mr. Cummings said if they were committed to these goals and the process, they would be in a better position when they came to the end.

Mr. Cummings noted it was highly unlikely that everyone would like every feature of the final design, but if everyone takes the time to endorse the goals and objectives it would put them in a better position where they could accept one another’s difference of opinions but not get “bogged down” in it.  He said it was important to agree on the goals and principles from the outset.

Mayor pro tem Wiggins said Mr. Cummings had mentioned towards the end of his presentation the figure of $80 million and a new company or organization that he was the head of.  She asked if he would repeat that information, because it may answer a concern that she had about the kinds of businesses that could go into this project.  Mr. Cummings said the organization they had founded was called Community Reinvestment Partners, noting that it would not be a participant in this project.  He said it was a fund that they founded that had approximately $83 to $84 million of equity, and had 11 institutional investors.  Mr. Cummings said it was established specifically for investing and renovating retail in low and moderate income areas.

Mr. Cummings said the specific fund that they had founded was for the State of Florida.  He said the reason he had mentioned it was to show that a lot of their projects were in low and moderate income areas.

Mayor pro tem Wiggins said one of her concerns for this project was not only to have affordable housing, but to have affordable retail space as well.  She said because this was going to be a partnership with the Town, space for local, new, beginning, incubator or minority type businesses that could really benefit from this location.  Mayor pro tem Wiggins said it would be wonderful to offer those types of business space, but it would make them part of a different type of rent structure.

Mr. Cummings agreed, stating that in their projections they were assuming an average rent of $20 per square foot on the Rosemary Street side.  He said the concept of renting space per square foot was a concept that was “thrown around rather loosely.”  Mr. Cummings said not only was the price per square foot important, but so was the way the space was designed, so that they don’t by definition have to be large.  He said if you provide the space that was 20 feet wide and 75 to 100 feet deep which was typical, then you could have a space that was 1,500 square feet and before you know it the business would have rent that was $3,000 to $5,000 per month.  Mr. Cummings said it was difficult to pay that kind of rent with a start-up business.

Mr. Cummings said the space on Rosemary Street was intentionally shallow at a depth of about 50 feet.  He said that allowed them to offer space at under 1,000 square feet so that the rents would be $1,500 to $1,800 a month.  Mr. Cummings noted they believed that small, local start-up business could function at that rent rate.  He said in their projections and designs they had contemplated that.  Whether or not that goes far enough, Mr. Cummings said, they may not know until the end of the process.

Mayor pro tem Wiggins asked would this also be a business arrangement that in addition to the rent there would be fees that would mean more out-of-pocket expense for a business.  Mr. Cummings said they did intend to charge each tenant their pro rata share of the cost to maintain the facility.  He said a person that had 1,000 square feet in a 30,000 square foot facility would pay 1/30^th of the cost to maintain the retail facility.  Mr. Cummings said he had mentioned keeping the rent of the small spaces on Rosemary Street to under $2,000, and this would be inclusive of that.

Mayor pro tem Wiggins asked if that was considered affordable retail space.  Mr. Cummings responded it was the standard today.  He said generally retailers could afford rent that was 10% of their sales.  Mayor pro tem Wiggins said what she wanted to hear was if RAM was awarded this project, they would be actively looking for small businesses across Chapel Hill that could benefit from this location.  She also thanked Mr. Cummings for mentioning the Northside neighborhood several times during the presentation, since Lot 5 was literally at that neighborhood’s front door.

Council Member Ward said he was “delighted” to see the insertion of their “Franklin Square” concept into the materials, noting it was an expression of creative energy that he believed was important and perhaps required to make something like these projects become a reality.  He said it was an interesting idea that they should not lose sight of.

Council Member Ward asked how would the 12 parking spaces on Church Street work, noting it was such a small number they would be filled by 8 a.m.   He asked would they have a time limit on them, and who did they anticipate would use those 12 spaces.  Mr. Lowe responded that those spaces were referred to by retailers as “teaser” parking.  He said the idea of having on-street parking was inviting to someone passing by to turn in and shop.  Mr. Lowe said if those spaces were filled, it was a simple matter to turn right and drive into the public parking garage.  He said it was important to have even a small amount of easily accessible parking that was user friendly.

Mr. Cummings said those spaces would be regulated in the same way as all other spaces throughout the Town.  He added it was important to note that they were providing, including the 173 that they were replacing for the public, they were provided a total of 422 spaces on that site.  Mr. Cummings said 12 spaces out of 422 was not significant, but it made a big difference.

Council Member Ward said he was concerned about how well these underground spaces would serve, since you would not be able to see if spaces were available.  He said he believes it may be necessary to have a sign that announced whether or not spaces were available so that people would not be frustrated by entering the parking garage when no spaces were available.  Mr. Cummings agreed that the signage was a good idea.

Council Member Ward said he had been involved in enough of these types of projects to know that a year down the road, the financial realities were “better than imagined, better than considered 12 months previously.”  He said he wanted to get a sense of greater certainty that the numbers that RAM had projected would stand the test of time and were going to continue to make this project a reality.  Council Member Ward said he did not want to hear a year from now that “we’ve got a problem.”

Council Member Ward said the two proposals before the Council were significantly different in terms of their assessment of the financial realities.  He said that had caused him to have additional concerns that they proceed along a path that is well grounded and reality-based, but conservative reality-based.  Mr. Cummings responded that the distinction between this project and other public projects was that there was a revenue component of this project that involved the sale of housing to consumers and involved the rental of space to retail tenants.

Mr. Cummings said it was true that costs had risen dramatically and their experience values had risen at a rate that was faster than the increase in cost.  He said the question was what would happen a year down the road.  Mr. Cummings said it was true that these were two very different proposals, and that RAM’s proposal was thinner from a profit perspective.  He said the key principle behind their proposal was that the profits generated from the project up to a certain level was theirs, and the risk associated with generating those profits was theirs as well.  Mr. Cummings said that their results would be from their hard work and their effort to be creative and take financial risk.  He said their estimates were based on today’s market, and the Council had to feel comfortable that the process, the objectives, and what they had already done to date showed that RAM was the better partner.

Mr. Stainback, addressing the Council, said that one thing that should make them feel secure was that what RAM was proposing was base rent as non-contention on performance, so it guaranteed payments to the Town.

Council Member Strom said RAM had asked a couple of times if the comprehensive approach that RAM had taken in bidding or putting a plan out for the Wallace Deck was what the Council wanted, and for him it was exactly what they wanted.  He said it was obvious that a lot of thought had gone into their entire presentation, and he appreciated that.

Council Member Strom said that all of the Council members had had the opportunity to permit projects where the Town was the applicant, and the Town had a conditional use zoning program that the Town had benefited from but they had also been “very tough” on themselves.  He said that it was a reasonable assumption that the Council would not “bend the rules.”

Council Member Strom said we had started this process in 1997 when they began master planning for the downtown, and were able to bring the idea of redevelopment in the downtown on Town property to this point because they had continued to advance forward with the confidence of the community.  He said regarding stakeholder input loops to address design issues, would they be comfortable dealing with the Council and the Council Committee to deal with some of these design issues directly.  Mr. Cummings responded they would.

Council Member Strom asked for more information regarding parking, specifically the numerical replacement parking, and how they see the cyclical nature of the parking working to support both retail and the residential components.  Mr. Cummings said first of all, he was having trouble tracking the distinctions between the two proposals on the parking provided.  He said to his knowledge, they were replacing all the current parking and providing all of the new parking needed for the new residential units, as well as two and a half spaces per thousand for retail.  Mr. Cummings said they were ignoring the benefit of shared parking.

Mr. Cummings said they believed that by urban design standards, they had met or exceeded the requirements for the incremental impacts that they were creating.  He said he was not sure if the other applicant had done the same.  Mr. Cummings said in addition, they had added 51 spaces to the Wallace Deck.  In terms of cycling, he said that studies had shown that when uses were combined that the demand was reduced by as much as 30 to 35 percent.  But that depended, Mr. Cummings noted, on the type of retailers and the nature of people that the project attracted, for example a shoe repair shop needed a lot less parking than a Krispy Kreme shop although they were both retail.  He said they believe that have provided adequate parking, and actually a little more to ensure success.  Mr. Cummings said in terms of when certain spaces would be available, there was no way to know scientifically how to determine when certain spaces would be open.

Council Member Strom determined that RAM was comfortable making the investment in this project with the parking spaces they had described, and felt it was completely adequate to support the existing retail and the newer demand.  Mr. Cummings replied “absolutely.”

Council Member Kleinschmidt said he had concerns about the risk the Town would be taking, noting that Mr. Stainback had assured the Council that “your money is safe.”  He said there were other kinds of risk, noting they were engaged in this program in order to achieve interests other than making money for the Town.  Council Member Kleinschmidt said making money for the Town was not the purpose for these redevelopment projects.  He said when he thinks about the risks the Town was taking, he thinks about losing those things or amenities that they wanted to create for the downtown district.

Council Member Kleinschmidt said let’s suppose that the financing does not work out, then if we get our money then what are we loosing?  He asked where RAM would take it from.  Council Member Kleinschmidt said that earlier in the presentation they had said their profit margin was lower but they were comfortable with that.  He said if their profit margin was lower, it appeared there were fewer places for them to take it from.  Council Member Kleinschmidt said, then, where did it come from if it did not come from RAM’s share, either.  He asked if there was a greater interest on their part, as it was for the Town, to redevelop these two properties.

Mr. Cummings said there was a greater interest on their part, since they were in the business of generating long-term profits for themselves.  He said their interest in the State of North Carolina which started several years ago with investments in apartments in Raleigh, was to expand their presence in the State and to increase their mixed use activity.  Mr. Cummings said when the opportunity to participate with the Town came forward, for them it was fortuitous.

Mr. Cummings said he could easily eliminate any risk, beyond what Mr. Stainback had mentioned, in two ways. First, he said, they obviously cannot draw a single building permit unless the Council signed off on the final plans.  And secondly, Mr. Cummings said, before the Council conveyed to them any right to a single square inch of land RAM would provide the Town with firm financial commitments for any funds needed to build the project.  He said not withstanding any agreements that were signed in advance, if RAM did not provide the Town with those commitments then the Town did not have to give RAM access to the land.  Mr. Cummings said in that way, 100 percent of the risk for the Town was eliminated, other than the risk that if 12 months from now the design project was completed but the market had evaporated.

Council Member Kleinschmidt said he had been struck by RAM’s level of confidence in that continued viability in that market.  Mr. Cummings said every demographic and sociographic trend points in this direction, and based on his experience he believed that North Carolina was on the leading edge of those trends.  He said he believed the increases they had seen here would pale in comparison to what they would see in the future.  Mr. Cummings said the trends point in the Town’s favor, that it was the type of place people wanted to live and the climate was favorable.

Mr. Cummings said that what they were creating would appeal to the broadest segment of the growing market, and regarding the market rate piece of their proposal, this segment of the market had the most money to spend and the least amount of other things to spend it on.  He said he was confident that they were heading into “sort of a perfect confluence” of all these factors.

Mr. Stainback clarified that there were several different types of land lease payments, and one of them was base rent which was what he was talking about that was guaranteed.  He said the land lease sharing of the net sale proceeds was contingent on the return of the condominium units, so they mix contingent and non-contingent income to the Town.

Summary/Next Steps

Mayor Foy said the Council would continue to consider the proposals and try to come to a decision is the next six weeks or so.  He said right now the Council would move into the Council board room and continue their discussion.

The meeting was adjourned at 12:20 p.m.